Silicon Insider: The New World of Startups

Jan. 25, 2007

Page 3 of 5

Foregoing IPOs for Buyouts

That model began to fall apart with the dot.com generation . . .and it has been completely revised in the world of Web 2.0. Thank to Sarbanes-Oxley and other regulations, today's startups rarely plan to ever go public. Rather, their goal is to reach sufficient size to be the subject -- the most famous recent example being YouTube -- of a multimillion- or even multibillion-dollar acquisition by a big Web 1.0 behemoth like Google or Yahoo.

In this new model, revenues aren't important; what matters is the size of your community. The big acquirers already have the revenues, but what they need are ever larger populations of committed members who can be converted into even larger sources of revenues. So the name of the game for startups is to get going, build as big a community as you can in the shortest amount of time, and then await the bidders.

This new tech startup model typically doesn't require nearly as much investment -- a fact that is driving traditional capitalists crazy. It also doesn't require very many employees -- you could have put the entire staff of YouTube, when it sold to Google for $1.7 billion, into a single, average-sized conference room.

But what it does take is an absolutely brilliant core idea, an inhuman business pace and a way to tap into the special kind of magic that takes a simple message and somehow puts it on the lips of 100 million consumers -- especially teenagers -- in the course of a couple months without the use of advertising or any other traditional marketing technique. It is a technique that was pioneered by Google, reached an early peak with FaceBook and has been turned into an art form by Web 2.0 saints like Evan Williams with Twitter.

This is the path that Santosh and his team have chosen to take with Powersnap. What he saw in his research into online photosharing was that while there are many huge Web photo sites -- Flickr, Shutterfly, Snapfish, etc. -- all are essentially silos for holding photographs. What was needed was an application that sat on top of these silos and enabled users to easily organize their huge and growing (thanks to cheap digital cameras and cell phones) photo files and then automatically send them out to predetermined lists of "subscribers," such as family, friends and workmates.

That was the clever part. Santosh was delighted to discover that there was nothing else like it on the market, or, apparently, in development.

With VCs, It's Put Up or Shut Up

The next step was to fund development. Being a new MBA and having been taught the traditional rules of entrepreneurship, Santosh and his team made the tour of Valley venture capitalists -- only to be told to come back when they had a finished product.

This was to be Powersnap's first great challenge. Many startup teams fold at this point, caught in the Catch-22 of not having enough money to build their product and not having a finished product to lure enough money. But Santosh took stock of his situation and decided to soldier on. He knew that in Ayush he had a veteran programmer (Cisco, Sun) who actually dreamed in code. Supreet is a master user interface guy (Ford, IBM, HP were among his clients). And best of all, a remnant of an earlier venture, he had a group of contract programmers back in India ready to take on any task.